XOMA Ltd. restructured its agreement for the psoriasis product Raptiva with Genentech Inc., eliminating a loan obligation and changing from a profit sharing to a royalty arrangement.

The modified agreement means Raptiva will become a profitable product for the company beginning this quarter.

"We're still very positive on the product," said Peter Davis, XOMA's chief financial officer, "but basically we had the opportunity in the contract to do a switch to royalties that was just financially better for us than the profit- and loss-sharing arrangement that we had."

Under the new agreement, XOMA will earn a mid-single-digit royalty on worldwide sales of Raptiva. In the U.S., the company will receive an additional royalty rate on sales that exceed a specific level. As a result, XOMA gave up its right to co-promote Raptiva, but it no longer will have to fund any development or sales and marketing activities.

The previous agreement involved a higher worldwide royalty rate structure, including a 25 percent share for XOMA of the U.S. sales of Raptiva, but it required the immediate repayment of the development loan.

"That original structure no longer exists," said Deb McManus, XOMA's manager of corporate communications.

By taking the lower royalties, XOMA is discharged of its obligation to pay the $40 million balance on the development loan plus accrued interest. In addition, XOMA's fourth-quarter share of Raptiva operating losses will be offset against future royalties payable by Genentech.

Davis told BioWorld Today that XOMA reported about $12 million in collaboration losses during the first nine months of last year, and he expected "the heavy launch costs" to continue.

The original development loan was $59.6 million. XOMA paid down $29.6 million of it, but had deferred the payments since the October 2003 approval of Raptiva. (See BioWorld Today, Oct. 29, 2003.)

XOMA has a goal to become profitable within the next three years, and the restructured agreement with Genentech is an important first step.

"We have other products in our pipeline that are in the early development stages," McManus said. "We have a number of different business deals, so this is one part of the picture for XOMA."

Raptiva gained European approval in September to treat moderate to severe chronic plaque psoriasis for which other systemic treatments or phototherapy have been inadequate or inappropriate. Serono SA, of Geneva, holds rights to the product outside the U.S. and Japan, and Genentech is entitled to royalties of between 15 percent and 20 percent on Serono's Raptiva sales, while XOMA is entitled to its 5 percent royalty. (See BioWorld Today, Feb. 7, 2003.)

Serono had launched Raptiva in Germany and the UK by the end of 2004 and plans to launch it throughout the rest of the European Union in 2005. Genentech holds rights in Japan.

For 2004, Genentech reported U.S. Raptiva sales of $56.3 million.

McManus said sales have "ramped up very nicely," adding that she anticipates future growth.

The monoclonal antibody Raptiva blocks the binding of LFA-1 to ICAM-1, inhibiting T cells from binding to key cells in the psoriasis reaction.

It is XOMA's first and only marketed product. At the time of its approval in 2003, analysts said Raptiva could capture $400 million to $500 million of the worldwide psoriasis market.

Other therapies for psoriasis include Thousand Oaks, Calif.-based Amgen Inc.'s Enbrel (etancercept), approved last year, and Cambridge, Mass.-based Biogen Idec Inc.'s Amevive (alefacept), which received approval in 2003.

In July, Genentech and XOMA reported 30-month results from an open-label study, showing that 78 percent of 159 patients administered weekly Raptiva therapy had a 75 percent or greater improvement in the Psoriasis Area Severity Index.

The companies have tried to develop Raptiva for other indications, but without much success. The product failed to reach statistical significance in a 107-patient Phase II study for psoriatic arthritis, and the companies also have stopped Phase II testing in rheumatoid arthritis due to a lack of efficacy. (See BioWorld Today, March 23, 2004, and May 13, 2003.)

South San Francisco-based Genentech discovered Raptiva and partnered with XOMA, of Berkeley, Calif., in 1996 for its preclinical capabilities, process development-scale manufacturing and its ability to run clinical trials. (See BioWorld Today, April 23, 1996.)

"I think it's been a good relationship," McManus said, "and certainly we would hope that we could consider future development efforts."

In XOMA's pipeline, researchers are studying the recombinant protein MLN 222, a product partnered with Cambridge, Mass.-based Millennium Pharmaceuticals Inc., which is in Phase I development for reducing the incidence of post-operative events in coronary artery bypass graft surgery patients. At the preclinical stage, the company is working with Emeryville, Calif.-based Chiron Corp. on CHIR-12.12, an anti-CD40 antibody for treating B-cell tumors; with Cheshire, Conn.-based Alexion Pharmaceuticals Inc. on a TPO mimetic antibody to treat chemotherapy-induced thrombocytopenia; and with Philadelphia-based Aphton Corp. on anti-gastrin antibody candidates for the treatment of gastrointestinal cancers.

Genentech Licenses Corixa Target For $9.85M

In other Genentech news, the company signed a license agreement with Seattle-based Corixa Corp. for an exclusive worldwide license to a novel target for the development of humanized antibody-based therapeutics.

Corixa is receiving a $1.6 million up-front license fee for the rights. It could receive royalties and up to $8.25 million more in milestone payments based upon completion of certain regulatory and commercial achievements.

By gaining rights to the target, Genentech will be responsible for development and commercialization costs of any therapeutic that results based on Corixa's antibody target.

As part of a restructuring effort in December, Corixa sold to London-based GlaxoSmithKline plc the worldwide rights to its non-Hodgkin's lymphoma product, Bexxar. At the same time, the company laid off about 43 percent of its work force, reducing its annual burn rate by $35 million in order to focus its resources on its adjuvants and TLR4 compounds. (See BioWorld Today, Dec. 15, 2004.)

Corixa's stock (NASDAQ:CRXA) rose 2 cents on Thursday to close at $3.69, while Genentech's stock (NYSE:DNA) dropped 44 cents to close at $49.76.